Delisting Reform Strategy to Restore Market Confidence

The competitiveness of capital markets depends not simply on how many companies are listed, but on how many quality companies are present and whether a rigorous management system operates to support them. The Korea Exchange has achieved significant external growth over the past 20 years. The number of listed companies increased from approximately 1,540 in 2005 to around 2,800 as of February this year. Market capitalization also expanded roughly eightfold. However, index gains have not kept pace proportionally. Compared to the end of 2005, the KOSPI index rose approximately 4.3 times and the KOSDAQ index only 1.7 times, showing limited qualitative results relative to quantitative expansion.

Behind this lies the accumulated problem of distressed companies. Based on fiscal year 2024, companies classified as marginal for three consecutive years reached 23%, and more than half of all listed companies failed to generate sufficient profits in terms of operating income or return on equity (ROE). This demonstrates that structural improvement of the market is a task that can no longer be postponed. When distressed companies remain for extended periods, they can undermine overall market confidence and lead to distortions where even quality companies fail to receive fair valuations.

Against this backdrop, the "Delisting Reform Plan for Swift and Strict Exit of Distressed Companies" announced last month is evaluated as a policy expressing the will to fundamentally improve market structure. This reform consists of three pillars: intensive management period operations, strengthening of four major delisting requirements, and enhanced procedural speed. Notably, advancing the market capitalization threshold application from 2028 to 2027 is significant in promptly establishing minimum economic scale requirements for maintaining listing status.

The inclusion of "penny stocks" priced below 1,000 won in delisting requirements is also noteworthy. Major overseas exchanges such as the New York Stock Exchange (NYSE) and NASDAQ have listing maintenance requirements for stocks below certain price levels, managing average market quality through these standards. Expanding complete capital impairment requirements to semi-annual periods and strengthening disclosure penalty standards also signal strict management of financial soundness and disclosure responsibilities. Procedural speed is another important change. Reducing the maximum improvement period to one year during substantive review and minimizing delays from injunction lawsuits are measures that enhance the timeliness and predictability of delistings.

This reform is expected to serve as an opportunity to substantially elevate the exchange's soundness. By clarifying exit standards and improving execution consistency, confidence in average market quality can be enhanced. This becomes the foundation for improving capital allocation efficiency by enabling investment capital to flow smoothly toward companies with high productivity and growth potential. Effects of preemptively reducing accumulated losses for minority shareholders from continued existence of distressed companies are also anticipated. While the number of delisted companies may increase in the short term, clear standards and swift execution rather than uncertain deferrals represent the path to higher investor protection levels over the long term.

Now the KOSPI index is approaching the 6,000 level, and the KOSDAQ market also faces a new leap forward. However, gains dependent solely on some large-cap stocks cannot guarantee sustainable growth. Now is precisely the right time to strengthen substance beyond external expansion. Delisting reform should be viewed not as punishment but as a strategy to restore market confidence and leap to the next stage. As fair, strict exits and consistent execution accumulate, our capital market will become healthier and quality companies will receive proper valuations.